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00:00So what is the message. What's your takeaway then from the earning season overall not just missing but what about forward guidance Richelle. Good morning. Thank you for having me on the show. Yes you're right. About 50 percent of companies that have reported so far have missed earnings. With that said they did pretty well on the top line to be to be clear. No I do not think that the entire impact of cost inflation was reported in this quarter because a lot of companies took their price increases and cost increases towards the end of the quarter. So my sense is that the next quarter is when you will see the full impact of cost inflation. And beyond that we think that inflation may peak at on September October timeframe and that's when you probably will see the impact on demand. As of now we have not seen any changes to consensus earnings estimates and I fear that there could be a downside risk to those estimates because of the results that we've seen so far. I mean the thing is though I mean in other parts of the region as well we're seeing sort of catch up demand. Does India have that issue as well. And perhaps this could mean that perhaps you know looking in the second half of the year we do see a bit of a slowdown and perhaps doing too much in terms of monetary policy could be counterproductive. Russia to be honest it's very little that one can do on monetary policy from here. I mean if you think from the RBA perspective they probably will have to follow what other central banks around the world are doing including the Fed. Otherwise it would be difficult to defend the currency. And that is why the announcements over the weekend around fiscal stimulus are important because that is the way you provide more stimulus to the consumer. Allowing the consumer to spend the subsidy that was announced over the weekend would mean that fuel costs will fall by about 7 to 8 percent. That could be good for the consumer at the margin. It could also be good for cement logistics and other such companies are. One of the big reasons why we're seeing inflation in India is because it's imported at the end of the day. And the government is doing what it can do to kind of cushion that impact. Is that the equity strategy and why for then. Because we have seen the domestic side of things and earnings are still look pretty good. And how well does that misplaced to you. I think the whole narrative is changed if you see this year so far. We started of the year thinking about you know moderate inflation and that would be good for equities because the top line stand to grow faster. Earnings are good even though the even though the discount rate rises but that has suddenly shifted to persistent inflation. So I think this a two fold from here on. First is of course on earnings as I mentioned consensus estimates haven't changed year to date because of this. And I think you will see that impact in there as we go along maybe in the next couple of months or so. The second I think bigger impact could be coming from central banks that you mentioned. Of course interest rates are rising. Fed the Fed is increasing. And therefore that will have an impact on valuations but more so cute in the second half of the year. That's something that no one's talking about at the moment as much. And I think that we have a significant impact on earnings as well. So if you see the Indian earnings for Indian valuations today at about 10 to 15 percent above their historical averages which mind you would influence by QE itself and India has outperformed year to date compared to the US or even other emerging markets. So I think those are the two sources of risk going for the rest of the next six months or so. We have JP Morgan saying zero returns for the Nifty this year. Bank of America also lowering their targets as well. I just want to have you had to adjust in any way where things are going to end up by the by year end. Well we haven't changed that target but I do think that the risks are rising. In fact you know it would be a good suggestion to investors to stay away from equities for something. One thing as volatility goes away. What do you see. Institutional investors can only hold certain amount of cash. And if that is the way forward then the two risks to this one is to look for cash rich companies in India which are providing dividends due to several companies often four to five percent dividend yield. And that in itself is a backstop for valuations. Now you can find such companies in one of the biggest media some FTSE companies and even some government owned companies. So that's one way to look at it. The second way to think of this is to look at companies that can pass on these costs. And what comes to mind is health care. Obviously the demand tends to be quite inelastic. And what surprised us this quarter actually are the chemicals which took price increases of 15 to 20 percent and yet haven't lost any subscribers. And that tells us that telecom subscribers are behaving much more like you know consumer staples consumers subscribers in that sense. So it's these are two areas to look at and probably in financials because sector sort off along with the institutional selling and the little red flags. IBEX what do entirely avoid very quickly. What do you avoid for now is obviously consumer discretionary. That is the place to be careful of because costs are rising prices will have to be increased and I suspect demand will take some impact towards the second half of the year. So be careful around that space. I would say.

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BNP Paribas Eleswarapu on Indian Markets

BNP Paribas Securities India Head of Equities Abhiram Eleswarapu discusses the outlook for Indian stocks and his latest strategy. Eleswarapu says its hard to be optimistic now given the risk to both valuations and earnings estimates. He speaks to Rishaad Salamat and Yvonne Man on "Bloomberg Markets Asia". (Source: Bloomberg)

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